Advanced Accounting, 5e

by Hamlen

ISBN: 978-1-61853-424-8 | Copyright 2023

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Road Map
LO Learning Objective Page eLecture Guided Example Assignments

Explain the purpose and motivations behind consolidation.

MC1, P8

Apply the concept of control to equity investments.


Apply the concept of control to non-equity investments.

MC2, 3, 9; E16, 17; P11, 12

Prepare consolidated balance sheets at the date of acquisition.

MC4-8, 10; E1-15; P1-10, 13-17

Explain IFRS for consolidations.

MC9, P10

Data Analytics

Businesses have experienced significant change in the last several decades due to the increased use of new technologies ranging from data analytics and Blockchain to machine learning and artificial intelligence. In response to the changing demands of the business world, the AACSB has incorporated data analytics requirements within its educational framework. More recently, the AICPA and NASBA have underscored the importance of data analytics by making it a significant element in the CPA Evolution Model Curriculum. The consensus suggests that students entering the accounting profession (or the business world more generally) need an understanding and working knowledge of data analytics to compete for the best jobs.

In recognition of the increasing importance of data analytics, the Fifth Edition includes assignments in myBusinessCourse that help students develop their data analytics skills. The assignments use Excel and Tableau to hone analysis and visualization skills. In addition, Appendix A at the end of the book provides an overview of data analytics, data visualization, and best practices for the effective display of data.

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Welcome to Advanced Accounting!

This book covers reporting for mergers and acquisitions, foreign currency transactions, hedges, state and local governments, not-for-profit organizations, plus specialized topics. Discussion of each topic focuses on key concepts, with manillustrations from practice, using familiar organizations. Emphasis is on the logic behind reporting standards and requirements, presented in a student-friendly way. Coverage is completely updated for the newest FASB and GASB standards and proposals, as well as relevant IFRS. Illustrations of business practice are taken from current financial statements and events.
The text has extensive student and instructor support. PowerPoint slides, eLecture videos, guided examples, and online homework and quizzes provide students with additional learning resources, and support both virtual and in-class instruction.

Target Audience

Advanced Accounting is intended for use, at either the undergraduate or graduate level, in the course commonly known as advanced accounting. It is also designed to be used in courses focusing on mergers and acquisitions that are often part of the MBA curriculum or that are offered as a nondegree, professional development program.

CPA Evolution Model Curriculum

The AICPA and NASBA CPA Evolution Model Curriculum (CPAEMC), launched in 2021, is designed to prepare students for current demands of the CPA exam and the accounting profession. The curriculum consists of three core areas required of all future CPAs, and a choice of one of three disciplines. Content areas within each core area and discipline are organized in modules and topics. Suggested courses are identified for each content area.

This textbook provides extensive coverage of the content areas suggested for advanced (ADV) and governmental/not-for-profit (GVT/NFP) courses, plus in-depth coverage of some content areas suggested for intermediate (INT) courses, as described below. Critical thinking, evaluation of reporting alternatives, and analysis of information are emphasized. A detailed description of the model curriculum can be downloaded at this link:

How This Book Effectively Teaches Advanced Accounting Topics

Conceptual Focus

Conceptual explanations focus on the logic underlying reporting standards. Each topic is developed by explaining the underlying business activity, the reporting goals, and how standards and procedures achieve these goals, using language students can understand. Illustrations from actual practice enhance understanding and familiarize students with the information presented in real financial statements. Reporting requirements are complex and require substantial judgment in their application. And standards change every year. Conceptual understanding prepares students to evaluate and effectively apply future standards throughout their professional careers.

Logical Flow of Topical Coverage

The organization of chapters reflects the logical flow of topics:

  • Mergers and acquisitions material is covered in Chapters 1–7.
  • International subsidiary translation and consolidation, foreign currency transactions and hedging, and other financial derivatives (futures, options, and swaps) are in Chapters 7–9.
  • Reporting standards for state and local government and NFP organizations are in Chapters 10–13.
  • Partnerships, bankruptcy and reorganization, and the SEC are covered in Chapters 14–16.

Relevant Real Company Illustrations

Each chapter begins with a description of a familiar focus company, and how its activities and reporting practices relate to that chapters topics. For example, in Chapter 2, IBMs extensive acquisitions illustrate accounting for mergers and acquisitions. Noncontrolling interests are common in the resort industry, and in Chapter 5 Las Vegas Sands Corporation illustrates reporting for noncontrolling interests in subsidiaries. In Chapter 9, Kelloggs hedging practices illustrate hedge accounting for futures, options and swaps. In Chapter 13, Beta Alpha Psis financial statements illustrate NFP reporting standards. Throughout each chapter, examples from actual practice highlight major topics, using either the focus company or other companies in the same industry.

Following is a list of focus companies by chapter.

Emphasis on Current Issues and Trends

Reporting Perspective

Reporting Perspectives comment on topics such as the strengths and weaknesses in reporting standards, motivations for changes in standards, their costs and benefits, ethical issues, implications for information quality, and proposals for new standards. The following is an example from Chapter 4.

Business Applications

Taken from current news and actual financial statements, Business Application boxes illustrate reporting practices, current issues, and controversies. Here is an example from Chapter 2, in the section covering valuation methods for assets acquired and liabilities assumed in a business combination.


Discussion and illustration of international financial reporting standards and proposals appear in each of the business combinations, foreign currency translation and transactions, and futures, options and swaps chapters. The following is an excerpt from Chapter 5.

Illustrations of IFRS in practice are also provided. Here is an excerpt from Chapter 5.

Clear and Logical Development of Business Combinations Topics

Reporting issues related to business combinations cover a variety of topics. Consolidation procedures are difficult to comprehend and can be confusing to students. Emphasis in this text is on the measurement aspects of combinations—reporting assets and liabilities acquired, determining acquisition cost, valuing noncontrolling interests, and eliminating intercompany accounts. The consolidation chapters start with the reasons why companies should consolidate and the goals of consolidation, and then explain how consolidation procedures achieve these goals.

To make consolidation procedures more comprehensible, eliminations subsequent to acquisition (covered in Chapters 4–7) presume that the parent uses the complete (full) equity method. Exclusive use of the complete (full) equity method allows students to focus on the goals of consolidation and the key issues in consolidation procedures. Once students develop a solid understanding of the consolidation process, changes in procedures required when the parent uses the cost method can be introduced. The appendix to Chapter 4 explains the eliminating entries necessary to adjust the parents accounts to the complete equity method before proceeding as usual with consolidation.

Additional Pedagogy

To reinforce concepts presented in each chapter and ensure student comprehension, each chapter has two or more In-Chapter Review Problems that require students to recall and apply the accounting techniques and concepts described in the chapter. The solutions to the review problems are included after each chapters assignments. The following example is from Chapter 2.

Learning Objectives identify the primary learning outcomes for each chapter. An end-of-chapter Review of Key Concepts summarizes the key topics of each chapter.

Extensive End-of-Chaper Material

End-of-chapter questions, exercises, and problems cover all major topics and have a range of difficulty levels, allowing students ample opportunity to practice their understanding of the chapter. Some problems require students to use real company data in applying their knowledge.

Certain business combination problems continue from chapter to chapter. For example, P3.2 covers consolidation at the date of acquisition, and P4.11 covers consolidation of the same two companies in subsequent years. P4.5 covers subsequent year consolidation of a wholly owned subsidiary, and P5.7 addresses subsequent year consolidation of the same subsidiary, when the subsidiary has outside ownership. In P2.6, an acquisition is reported as a merger, and in P3.12 the same acquisition is reported as a stock investment and consolidation. P3.4, P4.7, P5.4, and P5.5 use the same acquisition data to illustrate consolidation of a bargain purchase at the date of acquisition, subsequent years, and with a noncontrolling interest. P6.17 adds intercompany eliminations to P4.2s acquisition in subsequent years. Each of these problems can also be assigned separately.  In working through these problems, students gain a clearer understanding of accounting for business combinations, and how concepts learned in each chapter fit together.

In the state and local government chapters, two sets of comprehensive problems for the same county take the student through preparation of financial statements for the general fund, for other gov- ernmental, proprietary, and fiduciary funds, and culminating in preparation of the countys government-wide statements, with reconciliations. The Lake County problems are P10.19, P11.19, and P12.19, and the Hot Springs County problems are P10.20, P11.20, and P12.20. These problems can also be assigned individually or as a class project. 

New To The Fifth Edition

The text is completely updated for new standards, proposals, and other relevant events as of 2022. All illustrations, current practices, and reporting perspectives are also completely updated. Pandemic-related reporting issues and applications are included in many chapters. In addition, some text material has been rewritten to clarify and better organize specific topics. Major changes by chapter include:

  • Chapter 1: Additional explanation and analysis of AFS debt security impairment; actual applications of reporting using the CECL model for HTM investments; implementation of ASU 2016-01 for equity securities; additional description of reporting for changes in ownership.
  • Chapter 2: Comparison of mergers versus consolidations versus stock acquisitions has been rewritten to emphasize that they lead to the same reporting result; new material on reporting for asset acquisitions, with comparison to business combinations.
  • Chapter 4: Updates and additional explanation of goodwill impairment, including PCC guidance for private companies and discussion of possible changes for public companies.
  • Chapter 7: Consolidation procedures for an international subsidiary have been reorganized for clarity; new material on changes in functional currency; new section on consolidation when the subsidiarys functional currency is the parents currency.
  • Chapters 8 and 9: Expanded coverage of changes in hedge effectiveness and reporting alternatives for basis differences and time value; options and swaps material rewritten to better organize topics and illustrations; elimination of LIBOR.
  • Chapters 10, 11, and 12: A comprehensive illustration of fund and government-wide reporting, using Chapter 10s illustration of general fund reporting for Ranford County in Chapter 10, is extended to reporting for other funds in Chapter 11 and fund and government-wide reporting in Ranford Countys ACFR in Chapter 12; additional end-of-chapter comprehensive problems are added; current discussion of GASB financial reporting model improvements; enhanced coverage of implementation of the other postemployment benefits standard (GASB Statement No. 75).
  • Chapter 13: Additional examples of implementation of NFP reporting requirements that became effective in 2018; expanded discussion of reporting issues and the value of NFP financial information, as well as intermediate performance measures and liquidity disclosures; more actual illustrations of NFP reporting.
  • Chapter 14: New section on partnership tax issues; expanded coverage of partnership types.
  • Chapter 15: Expanded discussion of troubled debt restructurings, illustrations, and end-of-chapter problems.
  • Chapter 16: Updated for recent SEC reporting issues and changes in requirements; expanded discussion of SEC activities, including the use of data analytics for enforcement; extended coverage of CAMs; new section on current issues, including cybersecurity disclosures and ESG disclosures.
  • There are 325 new questions, exercises, and problems, and a net increase of 255 questions, exercises, and problems, at various levels of difficulty.

Teaching Supplements

myBusinessCourse: This easy-to-use program grades homework automatically and provides students with additional help when you are not available. Visit to sign up or to learn more about this programs features and benefits. In addition, detailed diagnostic tools assess class and individual performance. myBusinessCourse is ideal for online courses, blended courses, and traditional face-to-face courses for which you want to offer students more resources to succeed. Assignments with the MBC Homework icon in the margin are available in myBusinessCourse. eLecture videos and Guided Examples for the In-chapter Reviews are available for you to assign students.

Solutions Manual: Created by the textbook author, the Solutions Manual contains complete solutions to all the assignments in the textbook.

Test Bank: Written by the textbook author, the test bank includes a variety of multiple choice questions and problems, at various levels of difficulty.

Excel Templates:  Excel spreadsheets for select assignments are provided through myBusinessCourse. The Excel spreadsheets are identified by the Excel icon.

PowerPoint: Edited by the textbook author, the PowerPoint slides outline key elements of each chapter.

Expand/Collapse All
Preface (pg. iii)
Brief Contents (pg. xiii)
Contents (pg. xiv)
Chapter 1: Intercorporate Investments: An Overview (pg. 2)
The Coca-Cola Company (pg. 2)
Introduction (pg. 3)
Motivations for Intercorporate Investments (pg. 3)
Types of Investments (pg. 4)
Intercorporate Debt Investments and Equity Investments With No Significant Influence (pg. 4)
Trading Investments in Debt Securities (pg. 5)
Available-for-Sale Investments in Debt Securities (pg. 5)
Held-to-Maturity Investments in Debt Securities (pg. 8)
Equity Investments (pg. 9)
Review -1 Trading, AFS, and HTM Debt Investments (pg. 10)
Investments with Significant Influence (pg. 10)
Accounting Using the Equity Method (pg. 11)
Equity in Net Income Calculation (pg. 11)
Other Comprehensive Income and the Equity Method (pg. 13)
Investee Losses and the Equity Method (pg. 14)
Impairment Testing (pg. 14)
Change to or from Significant Influence (pg. 15)
Joint Ventures (pg. 15)
Review 1-2 Reporting for Equity Method Investments (pg. 16)
Controlling Investments (pg. 16)
Mergers and Consolidations (pg. 17)
Stock Acquisitions (pg. 17)
Change to or from Controlling Interest (pg. 18)
Variable Interest Entities (pg. 19)
International Financial Reporting Standards For Intercorporate Investments (pg. 19)
Intercorporate Debt Investments and Equity Investments with No Significant Influence (pg. 19)
Investments with Significant Influence (pg. 20)
Joint Ventures (pg. 20)
Controlling Investments (pg. 21)
Review of Key Concepts (pg. 21)
Multiple Choice Questions (pg. 22)
CPA Exam Questions (pg. 25)
Data Analytics, Data Visualization, And Excel Activities (pg. 25)
Exercises (pg. 25)
Problems (pg. 30)
CPA Simulations and Practice Exams (pg. 38)
Review Solutions (pg. 39)
Chapter 2: Mergers and Acquisitions (pg. 40)
IBM Corporation (pg. 40)
Introduction (pg. 41)
Motivations for Mergers and Acquisitions (pg. 41)
Overview of Business Combinations (pg. 43)
Standards of Reporting for Business Combinations (pg. 45)
Valuation of Assets Acquired and Liabilities Assumed (pg. 46)
Acquisition Date (pg. 46)
Identifying the Acquiring Company (pg. 46)
Measurement of Previously Reported Assets and Liabilities (pg. 47)
Identification and Measurement of Previously Unreported Intangibles (pg. 48)
Illustration of Reporting Assets Acquired and Liabilities Assumed (pg. 52)
Review -1 Reporting Assets Acquired and Liabilities Assumed (pg. 54)
Measurement of Acquisition Cost (pg. 54)
Contingent Consideration (pg. 55)
Employee Compensation (pg. 56)
Acquisition-Related Costs (pg. 56)
Illustration of Reporting Consideration Given in an Acquisition (pg. 57)
Subsequent Changes in Asset, Liability, or Contingent Consideration Values (pg. 58)
Measurement Period (pg. 58)
Reporting Subsequent Changes in Asset and Liability Values (pg. 58)
Reporting Subsequent Changes in Contingent Consideration Value (pg. 59)
Review -2 Reporting Assets and Liabilities Acquired, Consideration Paid, and Subsequent Events (pg. 60)
Bargain Purchases (pg. 60)
Special Issues: In-Process Research and Development, PREACQUISITION Contingencies, DEFERRED TAX LIAB (pg. 62)
In-Process Research and Development (pg. 62)
Preacquisition Contingencies (pg. 62)
Acquired Deferred Tax Liabilities (pg. 63)
Step Acquisitions (pg. 63)
Business Combinations Versus Asset Acquisitions (pg. 65)
International Financial Reporting Standards for Business Combinations (pg. 66)
Review of Key Concepts (pg. 67)
Multiple Choice Questions (pg. 68)
CPA Exam Questions (pg. 71)
Data Analytics, Data Visualization, and Excel Activities (pg. 71)
Exercises (pg. 71)
Problems (pg. 78)
CPA Simulations and Practice Exams (pg. 87)
Review Solutions (pg. 87)
Chapter 3: Consolidated Financial Statements: Date of Acquisition (pg. 88)
General Motors Company (pg. 88)
Introduction (pg. 89)
Criteria for Consolidation (pg. 90)
Motivations for Off-Balance-Sheet Entities (pg. 90)
Standards for Consolidation (pg. 92)
Control and Consolidation of Equity Investments (pg. 92)
Control and Consolidation of Non-Equity Investments (pg. 93)
Review -1 Identifying Consolidated Entities (pg. 97)
Consolidation at Date of Acquisition (pg. 98)
Consolidation of Financial Statements: Preliminary Issues (pg. 98)
Objectives of Consolidation (pg. 99)
Consolidation Working Paper (pg. 99)
Pushdown Accounting (pg. 106)
Review -2 Consolidation with Identifiable Intangibles (pg. 108)
International Financial Reporting Standards for ConsolidationS (pg. 109)
The Concept of Control (pg. 109)
IFRS and U.S. GAAP Compared (pg. 109)
Review of Key Concepts (pg. 110)
Multiple Choice Questions (pg. 111)
CPA Exam Questions (pg. 114)
Data Analytics, Data Visualization, and Excel Activities (pg. 115)
Exercises (pg. 115)
Problems (pg. 122)
CPA Simulations and Practice Exams (pg. 132)
Review Solutions (pg. 133)
Chapter 4: Consolidated Financial Statements Subsequent to Acquisition (pg. 134)
AT&T Inc. (pg. 134)
Introduction (pg. 135)
Introduction to Consolidation Procedures (pg. 135)
Consolidation Eliminating Entries (pg. 136)
Illustration of Consolidation Process (pg. 137)
Consolidated Financial Statements (pg. 139)
Complete Equity Method as One-Line Consolidation (pg. 140)
Reporting Revaluations of Subsidiary Assets and Liabilities in Subsequent Years (pg. 141)
Previously Reported Assets and Liabilities (pg. 141)
Previously Unreported Identifiable Intangibles (pg. 142)
Goodwill (pg. 144)
Amortization and Impairment of Identifiable Intangibles and Goodwill: An Illustration (pg. 149)
Review -1 Intangibles Impairment Testing (pg. 151)
Comprehensive Illustration: Consolidation in Subsequent Years (pg. 151)
Consolidation After One Year (pg. 152)
Consolidation After Two Years (pg. 155)
Review -2 Consolidation in a Subsequent Year with Identifiable Intangibles (pg. 158)
IFRS for Acquired Intangibles (pg. 159)
Identifiable Intangibles (pg. 159)
Goodwill (pg. 161)
Appendix to Chapter 4 (pg. 163)
Consolidation Eliminating Entries When the Parent Uses the Cost Method (pg. 163)
Review of Key Concepts (pg. 168)
Multiple Choice Questions (pg. 168)
CPA Exam Questions (pg. 172)
Data Analytics, Data Visualization, and Excel Activities (pg. 172)
Exercises (pg. 172)
Problems (pg. 179)
CPA Simulations and Practice Exams (pg. 191)
Review Solutions (pg. 191)
Chapter 5: Consolidated Financial Statements: Outside Interests (pg. 194)
Las Vegas Sands Corporation (pg. 194)
Noncontrolling Interests at Acquisition Date (pg. 196)
Valuation of Noncontrolling Interests and Goodwill at Acquisition (pg. 196)
Measuring the Fair Value of Noncontrolling Interests (pg. 197)
Consolidation Eliminating Entries at Acquisition Date (pg. 198)
Noncontrolling Interests in the Consolidated Balance Sheet (pg. 199)
Consolidating Variable Interest Entities (pg. 200)
Noncontrolling Interests in Subsequent Years (pg. 201)
Consolidation at End of the First Year (pg. 201)
Noncontrolling Interests in the Consolidated Statement of Income and Comprehensive Income (pg. 204)
Consolidation at End of the Second Year (pg. 206)
Consolidation of VIEs in Subsequent Years (pg. 210)
Review -1 Consolidation with Noncontrolling Interest at End of Third Year, U.S. GAAP (pg. 212)
Noncontrolling Interests and Bargain Purchases (pg. 212)
Bargain Purchase Consolidation at Date of Acquisition (pg. 213)
Bargain Purchase Consolidation at End of the First Year (pg. 214)
Bargain Purchase Consolidation at End of the Second Year (pg. 216)
International Financial Reporting Standards for Noncontrolling Interests (pg. 217)
Review -2 Consolidation with Noncontrolling Interest at End of the Third Year, IFRS (pg. 221)
Consolidated Statement of Cash Flows (pg. 221)
Preparation of Consolidated Statement of Cash Flows (pg. 222)
Consolidated Statement of Cash Flows: An Illustration (pg. 222)
Review of Key Concepts (pg. 224)
Multiple Choice Questions (pg. 225)
CPA Exam Questions (pg. 228)
Data Analytics, Data Visualization, and Excel Activities (pg. 228)
Exercises (pg. 228)
Problems (pg. 235)
CPA Simulations and Practice Exams (pg. 250)
Review Solutions (pg. 250)
Chapter 6: Consolidated Financial Statements: Intercompany Transactions (pg. 254)
Nike, Inc. (pg. 254)
Introduction (pg. 255)
Intercompany Service and Financing Transactions (pg. 256)
Intercompany Profits (pg. 257)
Equity in Net Income and Noncontrolling Interest in Net Income (pg. 258)
Intercompany Transfers of Land (pg. 259)
Eliminations in the Year of Transfer (pg. 259)
Eliminations in Subsequent Years (pg. 260)
Eliminations in Year of Sale to Outside Party (pg. 262)
Intercompany Transfers of Inventory (pg. 263)
Unconfirmed Profit in Ending Inventory (pg. 265)
Unconfirmed Profit in Beginning Inventory (pg. 265)
Review -1 Intercompany Eliminations: Land and Merchandise Transfers (pg. 268)
Intercompany Transfers of Depreciable Assets (pg. 268)
Objectives of the Eliminations (pg. 269)
Eliminations in Year of Transfer (pg. 269)
Eliminations in Subsequent Years (pg. 270)
Eliminations in Year of Sale to Outside Party (pg. 272)
Review -2 Intercompany Eliminations: Depreciable Asset Transfers (pg. 273)
International Financial Reporting Standards for Intercompany Transactions (pg. 273)
Comprehensive Illustration (pg. 274)
Review of Key Concepts (pg. 279)
Multiple Choice Questions (pg. 280)
CPA Exam Questions (pg. 283)
Data Analytics, Data Visualization, and Excel Activities (pg. 283)
Exercises (pg. 283)
Problems (pg. 290)
CPA Simulations and Practice Exams (pg. 303)
Review Solutions (pg. 303)
Chapter 7: Consolidating Foreign Currency Financial Statements (pg. 306)
Walmart Inc. (pg. 306)
Introduction (pg. 307)
Converting a Subsidiary’s Foreign Currency Accounts to the Parent’s Currency (pg. 307)
The Conversion Process (pg. 308)
The Functional Currency (pg. 310)
Translation and Remeasurement Procedures (pg. 311)
Translation Procedures (pg. 311)
Remeasurement Procedures (pg. 312)
Comparing Translation and Remeasurement (pg. 312)
Translation and Remeasurement Gains and Losses (pg. 313)
Translation and Remeasurement Illustrated (pg. 318)
Review -1 Calculation of Remeasurement and Translation Gain or Loss (pg. 320)
Review -2 Translation and Remeasurement of Foreign Currency Financial Statements (pg. 321)
Translation and Remeasurement of an Existing Entity (pg. 324)
Converting the Statement of Cash Flows to the Reporting Currency (pg. 328)
Financial Analysis Using Translated and Remeasured Information (pg. 329)
Effects on Profitability: The “DuPont Analysis” (pg. 330)
Effects on Analysis of Short-Term Liquidity and Long-Term Solvency (pg. 331)
Consolidation of international Subsidiaries (pg. 332)
The Consolidation Process: Subsidiary’s Functional Currency Is Its Local Currency (pg. 332)
The Consolidation Process: Subsidiary’s Functional Currency is the Parent’s Currency (pg. 336)
Review -3 Consolidation of an International Subsidiary, Translation (pg. 338)
Review -4 Consolidation of an International Subsidiary, Remeasurement (pg. 338)
IFRS for Translating and Consolidating Foreign Currency Financial Statements (pg. 339)
Translation and Remeasurement (pg. 339)
Subsidiaries in Hyperinflationary Economies (pg. 339)
Review of Key Concepts (pg. 340)
Multiple Choice Questions (pg. 341)
CPA Exam Questions (pg. 343)
Data Analytics, Data Visualization, and Excel Activities (pg. 343)
Exercises (pg. 344)
Problems (pg. 352)
CPA Simulations and Practice Exams (pg. 364)
Review Solutions (pg. 365)
Chapter 8: Foreign Currency Transactions and Hedging (pg. 370)
McDonald’s Corporation (pg. 370)
Foreign Currency Transactions and Risk (pg. 371)
Foreign Currency Transactions (pg. 372)
Import and Export Transactions (pg. 372)
Review -1 Foreign-Currency-Denominated Import and Export Transactions (pg. 375)
Hedging Foreign Exchange Exposures (pg. 377)
Types of Foreign Exchange Risk (pg. 377)
Derivative Instruments Used in Hedging (pg. 377)
Reporting Investments in Foreign Currency Derivatives (pg. 380)
Review -2 Using Forward Contracts to Hedge Foreign-Currency-Denominated Import Transactions (pg. 386)
Review -3 Using Forward Contracts to Hedge Foreign-Currency-Denominated Firm Commitments (pg. 390)
Review -4 Using Forward Contracts to Hedge Foreign-Currency-Denominated Forecasted Transactions (pg. 392)
Hedge Accounting Issues (pg. 398)
International Financial Reporting Standards for Foreign Currency Transactions and Hedging (pg. 399)
Qualifications for Hedge Accounting (pg. 399)
Comparison of IFRS and U.S. GAAP Hedge Accounting (pg. 399)
Financial Instruments Disclosures (pg. 401)
Review of Key Concepts (pg. 401)
Multiple Choice Questions (pg. 402)
CPA Exam Questions (pg. 405)
Data Analytics, Data Visualization, and Excel Activities (pg. 405)
Exercises (pg. 405)
Problems (pg. 410)
CPA Simulations and Practice Exams (pg. 418)
Review Solutions (pg. 418)
Chapter 9: Futures, Options, and Interest Rate Swaps (pg. 420)
The Kellogg Company (pg. 420)
Derivatives and Hedge Accounting (pg. 421)
Accounting for Derivatives and Hedging Transactions (pg. 422)
Hedge Accounting Qualifications (pg. 422)
Recent Improvements in Hedge Accounting Standards (pg. 423)
Futures Contracts (pg. 424)
Characteristics of Futures Contracts (pg. 424)
Transacting in Futures Contracts (pg. 425)
Accounting Events in Futures Trading (pg. 425)
T-Account Analysis of Futures Contracts (pg. 426)
Illustrations of Accounting for Futures Contracts (pg. 426)
Review -1 Accounting for Futures Contracts (pg. 430)
Option Contracts (pg. 430)
Characteristics of Option Contracts
 (pg. 430)
Hedge Accounting for Options (pg. 431)
Options as Fair Value Hedges (pg. 432)
Options as Cash Flow Hedges (pg. 436)
Review -2 Accounting for Option Contracts (pg. 437)
Interest Rate Swaps (pg. 437)
Assessing Hedge Effectiveness (pg. 439)
Accounting for Interest Rate Swaps (pg. 439)
Review -3 Accounting for Interest Rate Swaps (pg. 443)
Disclosure Requirements (pg. 444)
Derivatives and Hedging Disclosures (pg. 444)
Derivatives and Hedging Under IFRS (pg. 446)
IFRS 9 Hedge Accounting Requirements (pg. 446)
Review of Key Concepts (pg. 446)
Multiple Choice Questions (pg. 447)
CPA Exam Questions (pg. 449)
Data Analytics, Data Visualization, and Excel Activities (pg. 449)
Exercises (pg. 450)
Problems (pg. 454)
CPA Simulations and Practice Exams (pg. 460)
Review Solutions (pg. 460)
Chapter 10: State and Local Governments: Introduction and General Fund Reporting (pg. 464)
Mecklenburg County, North Carolina (pg. 464)
Nature of Government Activities (pg. 465)
External Users of Governmental Financial Statements (pg. 466)
Sources of GAAP for State and Local Governments (pg. 467)
Objectives of Financial Reporting (pg. 468)
Identifying the Reporting Entity (pg. 468)
Fund Structure (pg. 470)
Fund Types (pg. 471)
Review -1 Identifying Funds (pg. 473)
Accounting and Reporting By Funds (pg. 473)
Accounting for Governmental Funds (pg. 473)
Accounting for Proprietary Funds (pg. 474)
Accounting for Fiduciary Funds (pg. 474)
Government-Wide Reporting (pg. 475)
Accounting for the General Fund (pg. 475)
Budgetary Accounts (pg. 478)
Recording Property Tax Revenue (pg. 479)
Purchase of Goods and Services (pg. 481)
Inventories (pg. 482)
Interfund Transactions (pg. 483)
Capital Assets and Long-Term Debt (pg. 484)
Closing Entries (pg. 485)
Outstanding Encumbrances at Year-End (pg. 486)
Comprehensive Illustration of General Fund Accounting and Reporting (pg. 488)
Transactions During the Year (pg. 489)
Closing Entries (pg. 492)
Financial Statements (pg. 492)
Review -2 General Fund Budget and Closing Entries, Financial Statements (pg. 495)
Review of Key Concepts (pg. 495)
Multiple Choice Questions (pg. 496)
CPA Exam Questions (pg. 499)
Data Analytics, Data Visualization, and Excel Activities (pg. 499)
Exercises (pg. 499)
Problems (pg. 506)
CPA Simulations and Practice Exams (pg. 521)
Review Solutions (pg. 521)
Chapter 11: State and Local Governments: Other Transactions (pg. 524)
Alameda County, California (pg. 524)
Accounting for Special Purpose Activities (pg. 525)
Special Revenue Funds (pg. 526)
Permanent Funds (pg. 527)
Accounting for Capital Projects (pg. 528)
Capital Projects Fund (pg. 529)
Accounting for General Obligation Debt (pg. 534)
Debt Service Fund (pg. 534)
Review -1 Capital Projects and Debt Service Fund Transactions and Financial Statements (pg. 537)
Accounting for Proprietary Activities (pg. 537)
Enterprise and Internal Service Funds (pg. 538)
Review -2 Enterprise Fund Transactions and Financial Statements (pg. 541)
Accounting for Fiduciary Activities (pg. 542)
Fiduciary Funds (pg. 542)
Accounting for Investments (pg. 544)
Derivatives Investments (pg. 545)
Accounting for Other Liabilities and Debt Refundings (pg. 547)
Compensated Absences (pg. 547)
Landfills and Asset Retirement Obligations (pg. 547)
Accounting for Leased Assets (pg. 549)
Debt Refundings (pg. 550)
Comprehensive Illustration of Reporting for Funds Other than the General Fund (pg. 551)
Transactions, Journal Entries, and Financial Statements (pg. 552)
Review of Key Concepts (pg. 558)
Multiple Choice Questions (pg. 559)
CPA Exam Questions (pg. 562)
Data Analytics, Data Visualization, and Excel Activities (pg. 562)
Exercises (pg. 562)
Problems (pg. 567)
CPA Simulations and Practice Exams (pg. 581)
Review Solutions (pg. 581)
Chapter 12: State and Local Governments: External Financial Reporting (pg. 586)
City of St. Louis, Missouri (pg. 586)
External Reporting Model (pg. 587)
Management’s Discussion and Analysis (pg. 588)
Government-Wide Financial Statements (pg. 589)
Statement of Net Position (pg. 589)
Statement of Activities (pg. 590)
Discussion of Government-Wide Statements (pg. 590)
Review -1 Prepare a Statement of Activities (pg. 593)
Fund Financial Statements (pg. 593)
Major Funds (pg. 594)
Governmental Funds Financial Statements (pg. 594)
Review -2 Reconcile the Change in Fund Balances to Change in Net Position (pg. 601)
Proprietary Funds Financial Statements (pg. 601)
Comparison of Government-Wide and Funds Information (pg. 606)
Governmental Activities (pg. 606)
Business-Type Activities (pg. 607)
Notes and Required Supplementary Information (pg. 608)
Budgetary Comparison Schedules (pg. 608)
Capital Assets, Infrastructure, Investments, Defined Benefit Pension Plans, AND OTHER POSTEMPLOYMENT (pg. 610)
Capital Assets and Infrastructure (pg. 610)
Investments (pg. 610)
Defined Benefit Pension and OPEB Liabilities (pg. 611)
Financial Reporting Model Improvements (pg. 612)
Comprehensive Illustration: Preparation of Government-Wide Statements and Fund Statements for ACFR (pg. 614)
Full Accrual Entries for Governmental Funds (pg. 615)
Review of Key Concepts (pg. 620)
Multiple Choice Questions (pg. 620)
CPA Exam Questions (pg. 623)
Data Analytics, Data Visualization, and Excel Activities (pg. 624)
Exercises (pg. 624)
Problems (pg. 631)
CPA Simulations and Practice Exams (pg. 642)
Review Solutions (pg. 642)
Chapter 13: Private Not-For-Profit Organizations (pg. 644)
Beta Alpha Psi (pg. 644)
Characteristics of Private Not-For-Profit (NFP) Organizations (pg. 645)
Voluntary health and welfare organizations (VHWOs). (pg. 645)
Colleges and universities. (pg. 645)
Other private NFP organizations. (pg. 645)
NFP Reporting Environment (pg. 646)
External Financial Reporting Requirements: General Concepts (pg. 646)
Presentation of Financial Statements (pg. 648)
Statement of Financial Position (pg. 648)
Statement of Activities (pg. 650)
Intermediate Performance Measures (pg. 653)
Statement of Cash Flows (pg. 654)
Liquidity Disclosures (pg. 655)
Accounting for Contributions Received (pg. 656)
Unconditional and Unrestricted Cash Contributions (pg. 657)
Unconditional and Unrestricted Contributions of Goods and Services (pg. 657)
Donor-Imposed Time and Purpose Restrictions (pg. 658)
Donor-Imposed Conditions (pg. 660)
Donor-Imposed Restrictions in Perpetuity (pg. 661)
Contributions of Long-Lived Assets (pg. 661)
Split-Interest Agreements (pg. 662)
Contributions Received on Behalf of Others (pg. 664)
Review -1 Accounting for Contributions (pg. 664)
Accounting for Investments (pg. 665)
Review -2 Reporting for Investments (pg. 666)
Comprehensive Illustration of NFP Accounting: Northeastern Heart Society (pg. 666)
Reporting Issues for Specific Not-For-Profit Organizations (pg. 671)
Voluntary Health and Welfare Organizations (pg. 671)
Colleges and Universities (pg. 671)
Health Care Organizations (pg. 672)
Review of Key Concepts (pg. 673)
Multiple Choice Questions (pg. 674)
CPA Exam Questions (pg. 677)
Sample CPA Exam multiple choice questions from Gleim CPA Exam Prep are available in myBusinessCours (pg. 677)
Exercises (pg. 677)
Problems (pg. 682)
CPA Simulations and Practice Exams (pg. 695)
Review Solutions (pg. 695)
Chapter 14: Partnership Accounting and Reporting (pg. 696)
Suburban Propane Partners, L.P. (pg. 696)
Introduction (pg. 697)
Characteristics of a Partnership (pg. 697)
Relations of Partners to Others (pg. 698)
Relations Among Partners (pg. 698)
Partners’ Property Rights (pg. 699)
Contractual Provisions: The Partnership Agreement (pg. 699)
Partnership Tax Status (pg. 699)
Limited Partnerships (pg. 699)
Comparison of Corporate and Partnership Forms of Organization (pg. 701)
Partnership Reporting Issues (pg. 701)
Formation of the Partnership (pg. 703)
Bonus and Goodwill Approaches (pg. 703)
Review -1 Formation of a Partnership (pg. 704)
Allocation of Partnership Income to PartnerS (pg. 705)
Salaries to Partners (pg. 705)
Bonus to Partners (pg. 706)
Interest on Partners’ Capital Accounts (pg. 706)
Percentage Allocation by Income-Sharing Ratio (pg. 706)
Comprehensive Illustration of Partnership Income Allocation (pg. 707)
Schedule of Changes in Capital Accounts (pg. 707)
Review -2 Income Allocation (pg. 708)
Admission of a New Partner (pg. 708)
Admission by Purchase of an Existing Partnership Interest (pg. 709)
Admission by Investment of New Capital (pg. 710)
Effects of Bonus and Goodwill Methods on Partners’ Capital (pg. 713)
Evaluation of Bonus and Goodwill Methods (pg. 714)
Retirement of a Partner (pg. 714)
Purchase with Personal Assets (pg. 714)
Purchase with Partnership Assets (pg. 715)
Review -3 Retirement of a Partner and Admission of a New Partner (pg. 717)
Partnership Liquidations (pg. 717)
Priorities for Payments (pg. 717)
Rights of Creditors (pg. 718)
Simple Versus Installment Liquidations (pg. 719)
Simple Liquidations (pg. 719)
Installment Liquidations (pg. 721)
Review -4 Termination of the Partnership (pg. 730)
Review of Key Concepts (pg. 730)
Multiple Choice Questions (pg. 731)
CPA Exam Questions (pg. 733)
Data Analytics, Data Visualization, and Excel Activities (pg. 734)
Exercises (pg. 734)
Problems (pg. 739)
CPA Simulations and Practice Exams (pg. 749)
Review Solutions (pg. 750)
Chapter 15: Bankruptcy and Reorganization (pg. 754)
Toys “R” Us And Chesapeake Energy Corporation (pg. 754)
Legal Aspects of Bankruptcy (pg. 756)
Legal Process of Chapter 7 Liquidation (pg. 757)
Legal Process of Chapter 11 Reorganization (pg. 757)
Financial Reporting for Chapter 7 Liquidation (pg. 757)
Liquidation Basis of Accounting (pg. 757)
Statement of Affairs (pg. 760)
Review -1 Chapter 7 Liquidation (pg. 765)
Statement of Realization and Liquidation (pg. 765)
Financial Reporting for Chapter 11 Reorganization (pg. 769)
Reporting During the Reorganization Process (pg. 769)
Reporting After Reorganization (pg. 772)
Review -2 Chapter 11 Reorganization (pg. 777)
Other Forms of Restructuring (pg. 777)
Quasi-Reorganization (pg. 777)
Troubled Debt Restructuring (pg. 778)
Review of Key Concepts (pg. 779)
Multiple Choice Questions (pg. 780)
CPA Exam Questions (pg. 782)
Data Analytics, Data Visualization, and Excel Activities (pg. 782)
Exercises (pg. 783)
Problems (pg. 790)
CPA Simulations And Practice Exams (pg. 800)
Review Solutions (pg. 801)
Chapter 16: The SEC and Financial Reporting (pg. 802)
United States Securities and Exchange Commission (pg. 802)
Establishment of the SEC and Key Securities Legislation (pg. 804)
Establishment of the SEC (pg. 805)
Securities Legislation and the SEC (pg. 805)
Definition of a Security (pg. 806)
Organization and Structure of the SEC (pg. 807)
SEC Pronouncements on Accounting and Auditing (pg. 808)
Review -1 Mission and Organization of the SEC (pg. 808)
Registration of New Securities (pg. 809)
Periodic Reporting Requirements (pg. 810)
EDGAR (pg. 810)
The Annual Report: Form 10-K (pg. 810)
Regulation S-X (pg. 815)
The Quarterly Report: Form 10-Q (pg. 817)
Special Reports: Form 8-K (pg. 817)
Review -2 Registration and Periodic Reporting Requirements (pg. 819)
Corporate Accountability and Governance (pg. 819)
Sarbanes-Oxley Act (pg. 819)
Audit Committees (pg. 820)
Antifraud Provisions and Insider Trading (pg. 821)
Proxy Statements (pg. 821)
The Dodd-Frank Act (pg. 822)
SEC Current Reporting Issues (pg. 823)
Non-GAAP Performance Measures (pg. 823)
Cybersecurity Disclosures (pg. 823)
SPACs (pg. 823)
ESG Disclosures (pg. 824)
Review -3 Corporate Accountability and Governance (pg. 825)
Review of Key Concepts (pg. 825)
Multiple Choice Questions (pg. 826)
CPA Exam Questions (pg. 828)
Data Analytics, Data Visualization, and Excel Activities (pg. 828)
Exercises (pg. 828)
Problems (pg. 833)
CPA Simulations and Practice Exams (pg. 837)
Review Solutions (pg. 837)
Appendix A: Data Analytics and Blockchain Technology (pg. A-1)
Data Analytics (pg. A-2)
Big Data (pg. A-2)
Types of Data Analytics (pg. A-2)
Data Analytics in the Accounting Profession (pg. A-3)
The Analytics Mindset (pg. A-4)
Data Analytic Tools (pg. A-5)
Data Visualization (pg. A-6)
Blockchain Technology (pg. A-10)
Summary of Learning Objectives (pg. A-12)
Video Resources For Tableau (pg. A-13)
Multiple Choice (pg. A-14)
Additional Assignments are Available in myBusinessCourse. (pg. A-14)
Index (pg. I-1)
Susan S. Hamlen

Susan S. Hamlen

Susan S. Hamlen is the former Department Chair and Associate Professor of Accounting at the University at Buffalo School of Management. She received her PhD and MS at Purdue University and her BS at the University of California, Berkeley.

Professor Hamlen is the author of Advanced Accounting 4e and previously co-authored 12 editions of advanced accounting texts. She has taught courses in advanced accounting for over twenty-four years and courses in financial accounting for over nine years, at the undegraduate and graduate levels.

Professor Hamlen's research interests are in the area of reporting for financial derivatives and international reporting. She has publications in Journal of Derivatives Accounting, Theoretical Economics Letters, and in other accounting and analysis journals.

Professor Hamlen is an active member of the American Accounting Association and other accounting, analysis, and business organizations.

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Last Updated: Jun 19 2024

Corrections to identified errors in the first printing. 

Excel Templates
Last Updated: Jun 14 2023

Excel spreadsheets for select assignments are provided on the book’s website. These spreadsheets will save time in data entry and allow students to dedicate additional time to learning the material. The Excel spreadsheets are identified by the Excel icon.

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